February 25, 2009

Supreme Court Decides Pacific Bell Telephone Co. v. linkLine Communications, Inc.

On February 25, 2009, the Supreme Court decided Pacific Bell Telephone Co. v. linkLine Communications, Inc., No. 07-512.

In Verizon Communications v. Law Offices of Curtis V. Trinko, 540 U.S 398 (2004), the court held that the federal antitrust laws ordinarily do not require even a regulated monopolist to sell its services to others who wish to compete with it, even if specific laws applicable to the area of business impose such a duty. In this case, the Federal Communications Commission required Pacific Bell Telephone to sell wholesale DSL transport service to independent firms that compete with it in reselling such service to end-users. The plaintiffs, which purchased DSL service for resale, complained that Pacific Bell set its wholesale and retail prices at levels that prevented them from earning a "fair" and "adequate" profit and impeded their ability to compete. The question presented for the court was whether such a "price squeeze" violates section 2 of the Sherman Act. The court held that it does not, at least where the defendant has no antitrust obligation to sell to the plaintiff at all under Trinko. The court reasoned that, if the antitrust laws impose no duty to sell, those laws also are not concerned about the price at which the product is sold. Nor can an antitrust violation be based on the company's setting its retail price "too low" for its wholesale customers to compete with it, as long as that price is not predatory under the test set forth in Brooke Group Ltd. v. Brown & Williamson Tobacco Corp., 509 U.S. 209 (1993), which requires both below-cost pricing and a dangerous probability of recoupment of foregone profits if the predation succeeds.

Chief Justice Roberts delivered the opinion of the court. Justice Breyer filed an opinion concurring in the judgment, in which Justices Stevens, Souter, and Ginsburg joined.

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